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Havells India Ltd
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Ladies and gentlemen, good day, and welcome to the Havells Q4 FY '18 Earnings Conference Call. Hosted by Motilal Oswal Securities. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Ankur Sharma from Motilal Oswal Securities. Thank you, and over to you, sir.
Yes. Thanks, Lizaan. Good afternoon, ladies and gentlemen, and welcome to the Q4 '18 post-results earnings call of Havells Limited. With us today from the management, we have Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole-time Director, Finance and Group CFO; and Mr. Rajiv Goel, Executive Director.We shall begin with the opening remarks by Mr. Gupta and then open the floor for a Q&A session. Over to you, sir.
Thank you very much. Good night -- good afternoon, everyone. The quarterly and annual results are already shared with yourselves. We are quite enthused with the growth in revenues and profitability across all verticals at Havells and Lloyds. We believe that GST and demonetization impact are receding and there is a general optimism to perform better than in the recent past.Directionally, since we are being overly dependent upon real estate and new construction, it continues to be slow, however, we are seeing some progress in the second half of the year. Lighting and ECD spearheaded the growth trajectory backed by Cables & Wires. We're also satisfied with the assimilation of Lloyd as we complete a year of acquisition. The post-acquisition integration has been well achieved and we are quite positive on this prospect going forward.To summarize, we are optimistic on sustaining growth ahead in both revenues and profitability, and a wider portfolio to serve our customers and delve deeper into homes.We can now proceed to Q&A.
[Operator Instructions] The first question is from the line of Venu Garre from Bernstein.
So, firstly, on the Lloyd, just wanted to understand how we should look at growth given that it was not a full year, especially Q1 of last year had only 50 days of Lloyd. But if I look at quarter-to-quarter revenue growth, except for Q3, where there was a 16% growth, it seems to be that the commentary on Lloyd revenue growth was not that strong. So firstly, wanted to know how should we look at what was the revenue growth baseline for the year FY '18, if you were to look what has been the performance? And going forward in FY '19, what is the sort of target that one should look at for that business, eventually. So both from a margin and from a revenue perspective factoring in any new launches or any new product categories that you will want to bring within the Lloyd fold?
So, Venu, this year, I think if we include the sale of the entire Lloyd brand, including what they did April under erstwhile company and rest in the Havells, I think, it was at INR 1,875 crores and this includes the main player as well. And we believe that if there are industry-wide also, I think you might be aware that there has not been a great start to the year because of the delayed summers and the heat. So I think, it will evolve over the year, but we remain -- I think, we remain confident that there should be a low double digit that we achieve today, and hopefully, if we can add more products, that growth can be higher. But I think all -- as we believe, it's evolution of the business. I think this is not something which can be evaluated over last 4 quarter or the next 4 quarters. It is a journey which we are taking, let's say, taking for 3 to 5 years. And there, I think we remain fairly confident of what potential the brand holds, which is the entire consumer sort of appliances space, not just the ACs, but are then going into both TVs and washing machine, hopefully, over a period of time into that segment.
So low double-digit growth is what, sort of, you cite as the potential, at least in the medium term?
Correct. So I think, again, and Rajiv has just mentioned, that it's more of a directional thing. It's not something where we still have to see: one, the market; two, the integration of our marketing policies into the network, which has been well accepted now by the trade and so all these things are -- have to be put into the cocktail to get the final growth. And again, I say that whether role of a double digit and all this depends upon the market as well as how each and everything is working in the marketplace. All we can say is that we are moving in the right direction. Our pricing, our policies, our focus on product, our focus on future manufacturing, our spends on creating capability in terms of people, brand perception, changes because of the investments into brand. So all those things are moving in the right direction. And hence, we should look at this [ sphere ] over a longer period of time.
Okay, sir. Sir, my second question is on Lighting segment. Q4, there has been a fairly sharp increase in margins on a sequential basis, more from a like-to-like comparison. And growth has also been strong, which has sustained compared to how it was in the last quarter. So this margin increase in Lighting, is it to do with any project business, which we do for ESL, where there were more bookings in this quarter? Or is it a sort of a margin that you are seeing to sustain because of maybe pricing not coming off and things like that?
Yes. Sometimes again, margins you have to also see at a longer term basis, like maybe 2 or 3 quarters and the whole year. Because at the end of the fourth quarter, sometimes there are year-end adjustments, some warranties, which maybe, we may have provided for a target back and all that. So I would say, you may want to look at last 2 to 3 years as an average [indiscernible] run rate for the margins.
Sir, which brings me to the same margin question that on our EBITDA margin perspective, the fourth quarter core excluding -- I shouldn't say core actually, excluding Lloyd, the other parts of the business, that is not extrapolated, especially given -- I can't extrapolate that given the potential commodity price increases, right? This not a -- not the way that we should look all the businesses.
Yes, that's something for you to.
The next question is from the line of Fatema Pacha from ICICI Prudential Life Insurance.
I think a great set of numbers and a great year is what we've had. The way I see, we are doing excellent, [ annual ] cost cutting or margin expansion in Lloyd. Going forward, like FY '19, '20, are we looking at only double digit kind of margins?
So you're talking about the EBITDA margins in Lloyd?
Yes, yes, yes. EBITDA margins.
So EBITDA is actually -- EBITDA margins, you again, because of the seasonality of this business, one needs to look at the overall entire year margins. So obviously, the aspiration is to achieve double-digit margins. But it is, as I said, journey is there to achieve it. It will not happen immediately. We are putting in a lot of investments into people and brand. So the current fourth quarter and the first quarter are much higher in terms of revenue, hence it averages the entire year's EBITDA margin. So this quarter will be high and maybe first quarter will be high and then second, third quarter are generally lower.
But answering implied FY '18 margin as INR 1,875 crores will be either way upwards of 8, right?
Something around 7.5% to 8%.
8%.
Right. Okay. Fair enough. So you believe -- I think you had guided to 100 bps around margin expansion. Is that...
I would say we've already started the journey. And yes, we are moving towards margin expansion. This is...
Fair enough. And on the core business, is it fair that 15% growth is extremely doable with the flattish margins?
In which? Sorry?
For a core business, ex-Lloyd. Over a 15% growth with flattish margin is the way you want to look at it?
So, I think have to wait for the next few quarters. It is almost as if you are asking for guidance. So...
You've already given a guidance. So I don't know...
We don't. We don't give a guidance.
Fair enough, And sir, why -- is it fair that Lighting and Durables, those 2 businesses will be -- will continue to be a growth engine? And as we are in Cables & Wires, will -- pretty much we are in lower, but...
There is a tailwind for the Lighting business and the Consumer Durable business. Consumer Durable business has more newer launches, which are happening as well as deeper penetration is also helping. Lighting is also helped by the fact that there is refurbishment and change of old lights into new technologies, where LED coming in. So -- but the fact is that, overall we definitely see that real estate does not pick up so well in the last couple of years. And hence, we -- at this moment, we see that the Switchgears and Cable & Wires have not grown to that extent. But over a longer period of time, we don't see that there should be much of a difference between these businesses.
I'm sorry, I just missed you. What did you say? You don't see...
Much of a difference between these businesses. It may remain for some time because the real estate is still struggling and new launches -- new home launches and all. They are still struggling at the moment, but -- hence there is differentiation between Lighting, Consumer Durable and Cables & Wires and Switchgears. But over a longer period of time, they should have a similar trajectory.
The next question is from the line of Aditya Bhartia from Investec Capital.
Sir, we have seen margins in the Wires and Cables business improve quite significantly in the last 3 quarters. Do you think that the current margins can be sustained with commodity prices going up? And has -- is there anything that has changed in the industry structuring?
So we reported earlier that the second quarter margins were much higher because of certain advantage that we got due to commodity prices. After that, we have been able to sustain the margins in current fourth quarter. We continue to hope to reach -- very margin focused on that. Yes, you are right the commodity prices have increased sharply in the last couple of months. And we always maintain that we pass it on to the consumer. But in a very inflationary environment, the challenges in the next quarter and 6 months will be to see how much you are able to pass on. And whether there will be a time lag in between. But generally speaking, there is overall improvement in both the businesses of underground cables and domestic wires. And hence there's margin improvement.
Sure. And, sir, we have seen a fairly strong growth in the ECD segment this quarter. And I think the same was the case last quarter as well. Are we seeing the company gaining market share in the Fans' vertical?
In which vertical?
In Fans. In Fans business?
In Fan vertical, yes, definitely we have gained market share because our growth has been much better than many of the competition that we have numbers that are relevant. Overall, also one reason, for the fourth quarter increase was also maybe the lower base in the last year quarter, which was just coming out of the demonetization impact. But yes, if you specifically ask about Fans, we definitely believe in this year, we'll gain market share.
Sure. Any rough number, sir, that you can indicate how strong those market gains could have been?
Yes. Our growth in the Fan business has been close to about 11%, and on an industrial basis is about 18%. So what we hear is that the industry has been somewhat flattish because of the GST disruption in the months of June, July, August, September. So the industry has been very small growth or a bit flattish. But -- so that's what we believe.
Okay. Perfect, perfect. And lastly, sir, the cash balance has again risen to almost INR 1,500 crores, almost the same level that used to exist pre-Lloyd acquisition. How do you intend to utilize this? And are there any new acquisitions also that you would be targeting? Or would the focus be on growing Lloyd?
So the cash utilization, this year, specifically there will be a higher CapEx because of the new air conditioning manufacturing facility coming up. And in the future, it'll come down to more normal levels. This year will be more of a thing and plus, normally, we also keep at least INR 700 crores, INR 800 crores of cash in hand, generally speaking.
The next question is from the line of Renu Baid from IIFL.
A few things from my side. First, on Lloyds. The tradeoff that we have seen with respect to better margins and lower volumes. Can one say the lower volumes were relatively also attributable to the pricing actions that we have taken and relatively price increases that we saw in the market? And overall compared to the peers of the overall market, how was our growth? Have we seen some marginal erosion in market shares for the air conditioner for us?
I can't say on a month-on-month basis, but generally if you see the entire year, there is no margin -- market share erosion. And I would say that we've grown as per the market. And definitely pricing decisions are not effecting. We've seen it in Havells also. The industry is not as price elastic as what it normally is thought of. And hence, you need to make the right investment. So yes, we have improved the pricing or changed the pricing structure in the market. We also reinvested that back into brand building, expansion of channels and those kind of things. So brand -- growth has not been impacted, so we are very satisfied with the overall performance.
Right. And, sir, do we have any targeted level of ad spend in Lloyds? Or we would be broadly maintaining what we are seeing on an annualized base of almost 7% on ad and sales promo?
So because of the lower -- because of the 11 months that we have, this is -- otherwise, normally it should remain between 5.5% to 6%.
Okay. So broadly on the Lloyd side, we are very much on track with our strategy to slowly move towards mass premium market from the currently mass market in which the brand is broadly positioned?
That is right.
Okay. And, sir, in fourth quarter, typically, we also see incidents in the core business. We see incidents of higher winter products in the initial months and then fans. So overall, if we see, the growth in this quarter was driven by -- would have been also driven by reasonable growth coming in from the winter portfolio that we have? And how has been the overall -- over a season, which was last 2 quarters of growth in the market share for us in the Water Heaters and the winter products segment?
So water heater, again, this year, our growth has also been a bit around, let's say, 10% or so, but the market had been flat. We have gained market share, or in fact, the market has actually factored in this year. So we've seen market share gains both in Fans as well as Water Heaters. So -- but winter products is not such a huge part of the portfolio that it has impacted the third quarter and fourth quarter in the year.
And in the appliances category, actually there were 3 categories in appliances category, also we have grown well in this quarter. So I think, the growth has been -- and you would observe pretty sort of straight across the entire segment of the ECD.
Right. And then, sir, in all probability, then at one end when we are looking at probably low double-digit growth in Lloyds, at least the core business should then be looking at high double-digit growth given that the momentum and the GST headwinds are behind us and overall if we see improvement in the consumption and the related real estate outlook for the second half of the year.
Yes. Let's continue to have positive hopes.
Right. And, sir, my last question. If you can just share with us what were the volume numbers for growth in the Cable segment, our industrial and domestic cables, for the quarter and for the full year as a whole?
Full year as a whole, Renu, is -- will be combined. So quarter is 6% volume and 7% value. There's a mix of 13%, how you broken up. And for the year, it is flattish for volume and 9% value.
The next question is from the line of Arnab Mitra from Crédit Suisse.
On the ECD growth, I'm just trying to understand because you said that the Fans probably has grown at 18% and the Water Heaters has also grown like 10%. So the overall such a high growth in the second half, is there a substantial chunk of new products you've added outside these 2 categories? And if you could kind of give a sense of how much incremental growth has come from just new products this year or the last second half?
That's right. I don't have the numbers. And we normally don't give division in the sales of each product categories. But yes, water purification has been added in this year, which has [ come into Consumer Durable ]. But this is still a very, very nascent business. So I don't see any new businesses contributing to a major growth factor.
We haven't done the exact number, Arnab, but it's fair to say that, let's say, almost 20-odd-plus percent could be from Fan and other related growth will be largely coming from appliances. Though the appliance has been a low base, if you recall, for the past few years. But I think, that is really now taking off for us. So, I mean, these are the large contributors apart from the smaller verticals like personal domain and water purification, which we have just added. So we didn't have any base. They have been added in this quarter.
Right. And secondly, on Switchgears, you said that the real estate side was still weak. But the second half has actually been quite good for you. And this quarter, even the base wasn't pretty low. So is there something you are doing on the B2B side that you had earlier highlighted or industrial, which is driving this growth despite the weak cycle?
So couple of things. One, we've also got new orders from Hyundai Electric, which we signed for Switchgears. That started picking up in the fourth quarter. As well as, as you rightly said, the B2B segment has also started contributing some part. Still the eligible part comes from us -- for us from the trade segment only. And overall, the first half, if you compare with the first half, things were really bad, not just because of the market, but also because of the destocking of the marketplace, because of the GST disruption. So third and fourth quarter had to be better.
Right. Understood. And just one last question on CapEx. If you could just give the FY '19 or how much it's likely to be?
Just 1 minute. Yes, including the new plant, that will be around INR 500 crores.
The next question is from the line of Sonali Salgaonkar from BOB Capital Markets.
Sir, my first question is regarding Lloyds. Sir, how has been the AC's demand in the months of April and the first 2 weeks of May?
So this year, I would say that in North, the summer has not really been very hot because you had rain in between. So I will say that the first quarter has been a little bit soft.
Sir, and if you could also share with us how have the inventories been as in the channel inventories? Are they fully stocked up or are they liquidating right now?
They are in the process of liquidation right now because generally in this industry, it happens that in the fourth quarter, they stock up and then the summer comes, they start liquidating. So the tertiary sales have been going on at a decent pace.
Sure. Sir, and also if you could share what is the approximate quantum of cumulative price hikes that you have taken in Lloyd since Jan start?
Well, it's a mix of many things because the energy ratings change the cost of the product, the copper, aluminum. And so there are various things associated with that. And it's very difficult to give a specific number because the complete rating system changed from the 1st of January.
Sure. Sir, my last question. Sir, if you could share the number of distributors and retail touch points separately for Lloyds and Havells core business currently?
That we can share with you separately. Because at this moment, I don't have the figures at hand.
The next question is from the line of Gunjan Prithyani from JPMorgan.
Just a couple of follow-ups. On this Cable segment, could you give some color on how has been the growth across the industrial and the domestic cables because domestic cable -- wires also faces the similar headwinds like the Switchgears? So the growth here seems a little -- it seems to us positively surprised. Any color on that?
No there is, Gunjan, we have the combined numbers. That's what I just mentioned that on this quarter, we have grown volume 6% and value 7%, 6% plus 7%. And on the year, the volume had been flat, but the value growth has been 9%. So I think, a lot of this growth now is coming what you see is also coming from the value growth because the copper is increasing and you know, in this business, particularly, we pass on whatever the increase has been in the commodity, largely copper and aluminum. So in that way, I think this and Switchgears may not be exactly comparable in terms of the growth.
Okay. But is it fair to assume that the 6%, 7% volume growth what you've seen is also to do a lot from the industrial cable because that's the space which is seeing a lot of action from the government side as well?
Yes, but this quarter, I will not say it is entirely because of that. Hopefully, we will see the -- and cable normally is not a quarterly -- we appreciate it's not a quarterly business. Sometimes it just gets bunched up in a particular quarter. So I don't think that there's over volume within the industrial cable. I think it has a fair share of the consumer cable as well, the wire as well. So I think, this is pretty much representative of both the segments.
And anything that you've seen on the unorganized market, any stress there? Or you think that no, everything is still going the way it was in the past?
I think gradually it is making a difference, but I think it's maybe too muted and too early to comment upon that. But I think the combined effect of GST and this copper pricing in all groups, I think it will lead us into that direction. But as of now, they are not very firm large movers which we can indicate to you. But directionally, I think it's in that direction.
Okay. And second question on Lloyd. Just wanted to get your thoughts. Is it that we are not deliberately pushing too much volumes in the market because we also at the same time have to look at the margin improvement because when we really look at in some of the bigger markets, of course, colored by what I see in Bombay, the product -- the Lloyd has been far less present than what I saw probably last year? So is it that we are not aggressively pushing volumes and looking at margin improvement?
Oh, no. Absolutely not. These are really exclusive kind of things. Pricing improvement is the industrial phenomenon because with the energy efficiencies as well as commodity prices going up. So it is not only restricted to Lloyd as a whole. Generally, there are certain weaker markets and stronger markets, and we believe that Lloyd has taken a lot of positive steps towards deliberately adding more and more content in this year. Those we have modern format retail like Reliance [indiscernible] are now stocking the product which earlier, too, was obviously more of a distribution of the product. So many, many new channels have been opened up this year. So I would not attribute this to any new internal decision. It's more related to the markets.
So we've tied up with the modern formats now for the Lloyd distribution in [indiscernible].
[indiscernible] modern format retailers getting tied up. There's a lot of reasons retailers are getting tied up. So basically, just like Havells, it's the only channel philosophy.
Okay. And just last question on the ECD segment, can you just share what will be the scale of the non-fan product portfolio now?
As a percentage, we would not be wanting to get into details.
The next question is from the line of Akshen Thakkar from Fidelity.
Just a couple of clarifications. You mentioned the Lloyd's full year sales numbers at the start of the call. Could you maybe just repeat that number because...
INR 1,870 crores.
INR 1,870 crores. And that's like-for-like on which you are saying you expect low double-digit growth that -- I mean, to that, we don't need to make any adjustments for VAT or GST or some such stuff.
It could be possible because of Q1. Because in Q1 there was an excise elements. So there could be, but we haven't gone into that [indiscernible].
Sure. I was just asking. Second was just maybe if you could comment on the Switchgear margins. As you start doing the remote B2B and you have some contracts from Hyundai which you are sure of executing, may not have the same margins as B2C. How do you think about margins at Switchgears?
I think if we look in the domestic market and export market definitely maybe there are additional volumes which come from the export markets maybe at a lower margin. So but in domestic markets, we look at the blended margin and, there, we are confident of achieving similar margins.
Okay. But exports are going to go up in the percentage of shares Switchgears gets, right?
That's right.
Okay. Last question from my side. Could you just help us understand on the working capital side, now overall number looks great. But if I look at the creditor days, that's gone up significantly. Was there something peculiar about this year? This is what you expect creditor days to be?
[indiscernible] No, normally, you'll see that we have this large business and when you have this large I mean [indiscernible] suppliers, we have a large credit period from them, to win direct from them. So there is no [indiscernible] or policy we are targeting here. And hopefully, by next year, I think, you would see [indiscernible] in that. But we are -- normally supplier trying to get extended to you over a period of time in the normal course of business.
Correct. But as you start ramping up your own manufacturing in Lloyd, over -- maybe not next year, maybe over the next 2 or 3 years, you could see creditor day normalizing because...
Yes, but hopefully we're actually compensated then by better pricing power also with them. Otherwise -- and when we shift towards manufacturing, in any case, we will have rationalized into how the Havells [indiscernible] what its working capital days are.
Yes, so only question being that is there any reason to believe that the working capital levels at Lloyd could be significantly different from what your underlying working capital days had been?
No, it will not be. As I've said because Havells is 93% in-house manufacturing. While Lloyd today is 90% outsourced. So I think, once we start shifting that, the model is going to be entirely the same as Havells.
The next question is from the line of Atul Tiwari from Citigroup.
Sir, if I look at the full year segmental numbers for Lloyd, INR 1,400-odd crores to your top line, and INR 260-odd crores of EBIT. 19% EBIT margin, I mean, is there some one-off for the full year number in this? Because it looks a little bit too high from [indiscernible].
These are INR 260 crores of contribution margin, not EBIT numbers.
Yes, yes, yes.
8% -- EBIT percentage 8%, so that's the normalized.
Okay.
So but it's actually normal for Lloyd.
Okay, okay. And what was the Lloyd's revenue in fourth quarter of FY '17? Can we get that number just to see how much was the year-on-year growth in Lloyd for the quarter?
Well, actually -- it's not comparable, but I think it will be only marginal growth over Q4 of last year.
Okay.
They have a lot of import and CENVAT and all the numbers have changed because of GST.
The next question is from the line of Achal Lohade from JM Financial.
Sorry, if I'm repeating the question once again. This INR 1,875 crores is that a grossed up number or that's the number we should work on.
This is a net number, net of excise what they have reported in April and May and then we have added our reported numbers. So it is a summation of both the 2. There is no adjustment of excise here.
Got it, got it. Understood. Secondly, would it be possible to give some color with respect to the distribution for Lloyd in terms of contribution from tier 1, tier 2 towns. And how do you look at going forward apart from the modern retail?
No, I think, Achal, this will not be available and you need to dig deeper and not -- could not be part of this call.
Understood, understood. And in terms of the unorganized to organized, we do now start hearing that in some of the product categories there is some shift that is happening. Just wanted to get your perspective with respect to odd product categories where you've seen some experience with respect to such shift?
This, we generally see it over a longer period of time. It's very difficult to say just after the GST whether there is perceptible difference has happened or not. I think it's too early to say.
The next question is from the line of Naveen Trivedi from HDFC Securities.
So my first question is on the Lloyd side. If you can give some breakup in terms of out of this INR 1,870 crore net revenues, how has been the mix between the AC and TV numbers? And how that has changed? Those -- our FY '17 number last time the same way -- there's a different way of accounting. So how has the mix changed?
Mix is pretty much the same. And we, as with other divisions, we don't give product-to-product revision. But it's generally being on the same ratio as earlier.
So earlier we are seeing 70% AC, 22% panel and around 8% washing machine.
I don't have the numbers, maybe you know better. But yes, it is somewhere around that.
Fair point. So but keeping this INR 1,870 crore net revenue for FY '18, this gives us an idea that our Q1 FY '18 number, where we had a partial Lloyd, this must be around INR 700 crores. Is it the right number that we are looking?
Q1 number is INR 706 crores. Q1...
Q1 FY '18 with the full -- like the way we are given the INR 270 crore number, considering the Lloyd is with us for 12 months, then...
Somewhere around -- somewhere between INR 675 crore to INR 700 crore.
Fair one. So if you can just give similar to the yearly EBIT margin or EBITDA margin for Lloyd, like 8%. We have given it for INR 1,400 crores revenue. But how has been the margin for -- on a full year basis?
Full year, actually, we don't add on that margin, which is the overall retained by them. And we don't have a full handle on that. That's why the revenue estimate [indiscernible] margin can consolidate from what is left with them. So I think, we'll take it up this year.
Okay. But tentatively you can say that 8% is we can take it as sustainable?
Yes. So that's why we shared, the whole year is 8%, that's what we said.
I was just thinking that it is in the way -- you are capturing it only on the INR 1,400 crores kind of revenue.
Yes, only INR 1,400 crores, but since we don't have or we don't see opportunities to [indiscernible] at least that part should have 8%. So the overall should be 8%.
The next question is from the line of Bhargav Buddhadev from AMBIT Capital.
Sir, on Lloyd, just wanted to check that we understand that there is a tie up now with [ Vijay sales ] and Croma. So is there any other modern retail format also where we've undertaken that?
We are not sure about [ Vijay sales ] but I know at least in this [indiscernible] in the Reliance centers.
So it will be presented to Reliance Digital?
Reliance center, yes.
Reliance center. And how is the response, sir. I mean to start with, I know it's early days, but...
It is a very new start, just in the last 3 or 4 months.
Okay. Second, sir, we did mention that we are looking at setting up an air conditioning factory under Lloyd. So sir, would it be possible to know if you would be manufacturing compressors as well in this factory?
That is not in the plan.
All right, so that is not in the plan. And what would be the capacity, sir, in this factory which you would be looking at?
Initially, we will be putting up a capacity of 600,000.
And what would be the CapEx, sir, for this?
Around INR 300 crores.
And when do we expect this to kickstart, sir?
Sometime in the next financial year or fourth quarter of this year.
Okay. And sir, are we in also talks with other modern retail formats? And can we expect some...
This is a continuous process. As I said earlier, Lloyd is now changing its strategy towards being an omnichannels strategy in multibrand counters, regional retail. So there is now going to be a continuous process.
And sir, on this B2B side, we had done a lot of hiring. What we understand is there's almost a 250-member team now, which is focusing on selling to real estate developers. Sir, how is that progress happening? Are we -- can we say that in future, Havells will also directly tap developers and start selling to them on a direct basis or the business will happen primarily through the distributor route only?
See, the Switchgears business, the wire business and all the sales business and all, [indiscernible] consultants, contractors, trade is very much involved. So whilst our team's efforts are to create more pull for the product from newer consumers, like real estate, like industries. So that is the focus of the team. And you know the 250-member team is a combination of many -- it's not just real estate. It's basically B2B, including many lines of enterprise business consumers also. So -- but the entire business generally is run through the trade itself.
So sir, then what's the main activity of this team? Who does this team interact with in terms of new businesses?
It's consultants, electrical consultants, architects, interior designer, direct consumers, large consumers, real estate builders, so large industries, large corporates, commercial contractors...
But the business happens to the distributors essentially.
That's right, essentially.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, my first question is if you could explain why the depreciation in this quarter has actually come down compared to Q3? Any particular adjustment there?
We have to look into this and we can come back to you.
Sure, sir. Sir, second thing if you could also share the split in your lighting business. You had shared it last time around that about INR 128 crore was ESL business. Could you give the split what it was in 2018 out of the total number of about INR 1,168-odd crores?
I can -- maybe you can check with Manish at some point in time. I don't have the exact number. So I don't want to guess.
The next question is from the line of Ashish Jain from Morgan Stanley.
Sir, my first question is on the Cables & Wires business. So if I look at the margins, they have expanded significantly this year. And this is on rising cost -- on rising prices. Given, we said that volumes this year was flat in '18 versus '17, does it imply that on a per unit sales, our margins have expanded significantly, as in our profits have expanded significantly? And what is driving that?
So one thing which driving sales there is an overall change towards how we're going to the marketplace. As we said, there is an enterprise business which is likely going to be consumers, creating a brand perception. I mean, it's a long journey that we have seen -- focusing upon that, you know changing commoditized products through a branded sale and, I think, it's showing some results. Underground cables continues to be something which is definitely more competitive than the domestic wire industries, but overall, we see an improvement.
Sir, could it mean that when commodity prices, let's us say, start coming down, our reported margins in cables and wires could actually increase from here?
I am not sure about that. No, generally speaking, it's a competitive environment. It's not somewhere -- we are just present there. So we will have to act according to how the competition behaves.
Okay. And just secondly, in Switchgear, you earlier alluded that second half we have seen some recovery versus, let's say, first half or the last few quarters. So is this something which seems sustainable to you, or this could be...
I compare second half to the first half more in the context of the GST, which I've shown under demonetization aftermath. So I think, I still feel that the real estate has not picked up to the extent that we would like.
Okay, great. And sir, lastly, on lighting, what's specifically driving the growth in lighting that you are seeing? Anything particular you would want to point out?
So it is a combination of many things: deeper distribution; reach. On the enterprise side, more access to the final consumers and also some part is going into the refurbishment of old technologies to newer technologies. So a combination of many things.
The next question is from the line of Shrinidhi Karlekar from HSBC.
Sir, I just wanted to understand what is the opportunity that you have on organic growth front in magnetic contractor part as well as water purifier? Can you please help us visualize the category size, how is the competitive intensity in that? And how has been the initial response to your water purifier entry? That is the first question. And sir, the other question is on Lloyd business. If it's not competitive or sensitive, may I ask you how many number of ACs actually you've sold in FY '18 and how much it has grown in volume terms?
As far as these magnetic contractors, it's a very large industry where we have many companies who are already invested in that. It goes as a part of our industrial Switchgear portfolio. So at this moment to give you any flavor of that industry, it would not be right in this call. Water purification, all I can say is that the initial response has been very encouraging. It is still at that stage where we're creating the distribution. We're going deeper into the retail channels and waiting for -- and creating the right service network. So I think, over a period of time, we will continue to grow organically, but it will take its own time because it is [ doing ] extremely good. And I think the Lloyd numbers, we are giving most of the numbers in value not in terms of quantity.
Okay, sir. But just last one, if I can. So the INR 1,870 crore revenue that we talked about considering the 40 days that Lloyd was the erstwhile owner, there you talked about portfolio margin being 8%. Sir, would it be possible to share how much is it different for the AC portfolio and the non-AC portfolio and how materially different it is?
What? The profit margin?
Yes. So is it like 10% that we are already earning in AC and maybe the panel card and, whatever, the washing machine is like 6%. Is it that mix? Is that the way one should look at it? Or largely both the segments like AC and non-AC is about 8%?
You have to see it together because it goes through the sales channels with the same sales teams, marketing teams, channels. So it's very difficult to allocate specific cost to each product category.
The next question is from the line of Snigdha Sharma from Axis Capital.
So 2 quick questions from my side. On Lloyd, so higher margin in a peak quarter is quite understandable. But given that this quarter, we also saw input price inflation, INR depreciation, also assuming that the advertising costs would be higher given the peak season. I see it's quite a steep jump from the 2.9% EBITDA margin we reported last quarter to a 12% this quarter. So what has contributed to this increase? If you can just briefly talk about that, it would be really helpful.
I think these businesses are very much related to sales, the higher the sales, your expenses that are amortized on that. And obviously, higher advertising happens, but it is not in the same percentage that happens during the other quarters. So but I think, overall, I will say that we need to look at the larger -- to get longer period than this 1 quarter. Yet commodity prices have increased, the dollar has moved unfavorably as well. So some of the impact will actually come in the second quarter because there is a high degree of, let's say, inventory and creditors. [ Specifically ], also, will get passed on by the entire industry with the consumer, during the inflationary times it is a balancing act, we have to maintain.
Sir, so most of this is operating leverage, the increase in the margins?
Yes, and the whole year if you see it is around the 8% because I think pretty much in line with the industry. In fact, it continues to be lower than the industry. I'm sure you're well aware of the competition and how margins may track. So I think one should not read really unduly into the Q4 results. And I think our efforts to continue to improve both on the volume and margin will continue in this year as well.
Sure. And secondly, sir, we've spoken about an 11% growth this year on a like-for-like basis for Lloyd. So can we talk about how the market share has moved in this last 1 year? I'm guessing we have slightly lost share because the industry has grown much faster. And given the competition, how easy or difficult is it to sort of gain it back in the next few quarters or year?
We are not sure whether we have lost market share, it would be difficult to say. We believe we are in top 3 in the AC segment, which is our predominant segment. And again, I think in month-to-month basis, what changes, very difficult to comment upon that. But we have a specific plan for Lloyd. We want to make it much more wide ranging, both in terms of product as well as the distribution reach, now getting to manufacturing as well. Build up the brand, take up its perception among the people, have competitors as well. So I think, there are so many things which are going to happen in Lloyd that, frankly, we are not overly focused just on one number of what's going into the market. We have a lot to do. And we believe we are sort of operating satisfactorily on all those counts.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.
No closing comments. Thank you.
Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Securities, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.